Delivering another blow to the independent contractor model, the Ninth Circuit Court of Appeals held this week that furniture delivery drivers for Affinity Logistics were employees under California law, not independent contractors.

In Ruiz v. Affinity Logistics Corporation, the Court of Appeals rejected the district court’s conclusion that Affinity’s drivers were independent contractors, a decision the district court had reached based on the fact that the drivers had established their own businesses, obtained their own Employee Identification Numbers, signed independent contractor agreements, and could hire helpers or secondary drivers. The Ninth Circuit instead ruled that other factors were more important to the analysis and that California law required the conclusion that they were employees of Affinity.

The case is now being sent back to the district court with instructions to enter judgment in favor of the drivers, who claimed that Affinity failed to pay them sick leave, vacation, holiday, and severance wages, and improperly charged them for their own workers compensation coverage.

The decision shows the lengths to which courts will go to invalidate independent contractor agreements, including rejecting the parties’ contractual agreement to apply Georgia law, which would have weighed more heavily in favor of independent contractor status.

Background

In 2003, Affinity Logistics entered into a contract with Sears to deliver furniture and appliances. Affinity took over the contract formerly held by Penske, and Sears told the former Penske drivers that they should apply for work with Affinity. Affinity welcomed the drivers, but told them they would have to work as independent contractors, create a business name, obtain a business license, and open a commercial checking account. The drivers also had to enter into independent contractor agreements, which included language acknowledging that each driver “is an independent contractor of Affinity in all manners and respects.” In the contracts, the drivers and Affinity agreed that Georgia law would apply to any disputes, since Georgia is where Affinity was headquartered.

Ruiz worked for Affinity from 2003 to 2004. He sued Affinity after the relationship was severed, claiming that he – and other similarly situated drivers – had been misclassified and should have received various benefits to which employees were entitled. After a bench trial in 2009, the district court upheld the choice of law provision, upheld the agreement, and ruled in favor of Affinity, finding that the drivers were independent contractors under Georgia law.

The First Appeal

Ruiz appealed. In a February 2012 decision, the Ninth Circuit reversed the district court and ruled that the parties’ choice of law provision should be disregarded. The Court of Appeals ruled that Georgia law was too favorable to the company and therefore was “contrary to a fundamental policy of California.” California’s policy, the Ninth Circuit ruled, is to presume that whenever services are offered, an employment relationship exists, and the company then has the burden to present evidence to overcome that presumption. Georgia law, in contrast, starts by presuming that when a contract designates a relationship as an independent contractor relationship, that designation should be respected, and the worker then has the burden to prove he was really an employee. The Ninth Circuit sent the case back to the district court with instructions to analyze Ruiz’s status under California law.

In August 2012, the district court re-analyzed the evidence under California law but reached the same conclusion – the drivers were independent contractors.

The Second Appeal

Ruiz appealed again. On June 16, 2014, the Ninth Circuit reversed again. But this time, the Ninth Circuit did not merely overrule the district court as to which law to apply; this time the Ninth Circuit told the district court how to analyze the facts and what conclusion had to be reached.

The Court of Appeals ruled that under California law, the most important factor in the analysis is the company’s right to control work details. The Court concluded that Affinity controlled enough details of the drivers’ work that they were employees, not contractors. For example, the company played a significant role in setting rates of pay, work schedules, routes, attire, and loading procedures.

The Court of Appeals also considered eight secondary factors, ruling that these too weighed in favor of employment status. The Court noted that the drivers’ work was supervised, that the drivers’ own businesses were created only because Affinity required it, that the drivers’ work did not involve substantial skill, that the trucks were provided by Affinity (even though the drivers had to pay for them), that Affinity determined the pay, and that the drivers’ services went to the core of Affinity’s business. The Court recognized that the parties believed their relationship to be that of an independent contractor, but the Court deemed the contract terms to be irrelevant. The Court also observed that the contract could be terminated at will but deemed that factor to be neutral. In all, the right to control test weighed heavily, in the Ninth Circuit’s opinion, in favor of employment status, and six of the eight secondary factors weighed in that direction as well.

The Delivery Driver as Contractor Model is Under Heavy Siege

Affinity is hardly the first delivery company to consider its drivers independent contractors, and they now join the ranks of many others who have seen this model sacked by the courts.

In March, a federal judge in Maine approved a $5.8 million settlement in favor of FedEx delivery drivers who claimed they had been misclassified.

In April, the New York Commercial Goods Transportation Industry Fair Play Act took effect, creating new, tougher standards for determining independent contractor status for drivers transporting goods in trucks weighing more than 10,000 pounds.

State and federal governments, as well as plaintiffs’ lawyers, continue to challenge independent contractor classifications aggressively.

Takeaways

Whether someone is an employee or independent contractor is determined primarily by the facts of the relationship. If the contract is not consistent with the facts, Courts will often ignore the contract.

Delivery companies who classify their drivers as independent contractors should expect continued challenges to that classification.

Different courts may review the same facts but reach opposite conclusions. This discrepancy highlights the importance of steering as many facts as possible toward the desired result. Relationships can usually be restructured so the facts weigh more heavily in the direction of independent contractor status.

BakerHostetler’s Independent Contractor Misclassification Team focuses on helping companies to evaluate their use of independent contractors and to develop strategies for minimizing the risks of misclassification. Click here for more information or to contact a member of the team.